The Reserve Bank of India (RBI) expects a promising outlook for the Indian economy in FY26, supported by a revival in consumption demand and the government’s focus on capital expenditure, the RBI’s Annual Report stated.
The central bank also highlighted fiscal consolidation as a key factor sustaining growth.
Healthy bank and corporate balance sheets, easing financial conditions, a resilient services sector, and strong consumer and business confidence will further support economic expansion.
The RBI also cited India’s sound macroeconomic fundamentals as a strength.
Global Uncertainties Pose Risks
However, the RBI warned of downside risks from uncertain global trade due to protectionist policies, prolonged geopolitical tensions, and financial market volatility.
These factors may also push inflation higher.
Despite these challenges, the RBI said India is set to remain the fastest-growing major economy in FY26 by leveraging its financial sector robustness and commitment to sustainable growth.
Monetary Policy & Inflation Outlook
The report noted that inflation is expected to ease, moving closer to the target in FY26.
The RBI commits to a growth-supportive monetary policy while remaining cautious about evolving global macroeconomic conditions.
It plans to manage liquidity carefully to meet the needs of productive sectors and ensure durable price stability, which it considers essential for sustained high growth.
The RBI flagged rising input costs in manufacturing and global headwinds, such as trade protectionism and subdued demand, as risks to growth.
Food inflation is likely to soften due to a better rabi crop, helping reduce headline inflation gradually.
Focus On Regulation & Financial Stability
The RBI will work on harmonising regulations across regulated entities and issue prudential guidelines on climate risk for banks. It will also prepare a framework for ethical AI adoption in finance.
Additionally, the central bank will strengthen liquidity stress tests for banks, consider risk-based supervision for urban cooperative banks (UCBs) and non-banking financial companies (NBFCs), and enhance cybersecurity and fraud detection systems.
The report highlighted India’s strong external sector, backed by ample foreign exchange reserves and modest external debt, as key to overall macroeconomic and financial stability.
Also Read: India’s Economy Set To Grow 6.3-6.8% In FY26, Focus On Productivity And Investment: CEA Nageswaran
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